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LNG trade flow dynamics shift as inter-basin derivative spreads turn positive – S&P Global


Mild weather forecast in Europe through January

Japanese buying interest piques

Inter-basin spreads returned to positive territory, signaling better economics for delivering LNG to Asia, as European prices came off faster amid mild weather forecast through January.

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The market dynamics shifted quickly, with most cargoes still heading to Europe in the Atlantic Basin Dec. 31, based on data from S&P Global Platts’ vessel-tracking software tool cFlow.

Deals concluded based on the flip in spreads, assuming the trend sticks, likely won’t shift the direction of trade flows for several weeks, according to sources. The change in spreads characterized the volatility in the LNG markets in 2021.

The spread between the Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, and the Dutch TTF European gas hub is often used as a sign of arbitrage potential between the Atlantic and Pacific basins.

JKM/TTF March derivatives finished the day in positive territory for the first time since Dec. 13, trading at 45 cents/MMBtu before the close of the holiday-shortened London session Dec. 31.

The latest weather forecasts suggest that most of Europe is set for warmer-than-usual temperatures in January, following mild weather during second-half December. That could drive bearish conditions in the European gas markets, which have retreated sharply from a record high Dec. 21.

Market sources in Asia reported some latent buying interest from Japanese buyers, although most did not commit, preferring to reevaluate demand and inventory status after New Year’s Day.

US Gulf Coast FOB cargoes were closer to a toss-up from a netback standpoint when combined with the dramatic declines in shipping rates over the last month. Maximum waiting days for unreserved LNG tankers transiting the Panama Canal were in the low single digits in both directions, though they have slightly risen recently.

Platts assessed the US FOB Gulf Coast marker for February at $21/MMBtu Dec. 31, down $5/MMBtu day on day and almost $34/MMBtu from a record high set Dec. 21. The current value is the lowest since Nov. 1.

The US Gulf Coast versus Northwest Europe differential for February stood at $1.613/MMBtu. The arbitrage was effectively closed, when factoring in the Platts-assessed USGC-NWE freight rate of around $1.57/MMBtu and loading terminal lifting and destination terminal regasification costs.